'Mini-budget': What will get costlier?

Published December 31, 2021
A man counts money at his shop in Karachi.— AFP/File
A man counts money at his shop in Karachi.— AFP/File

On Thursday, the National Assembly (NA) saw another session marred by ruckus and chaos as Finance Minister Shaukat Tarin presented the Finance (Supplementary) Bill 2021 — which the opposition has termed a "mini budget" — amid loud protests and uproar by the opposition.

The bill is aimed at meeting the International Monetary Fund's conditions for the clearance of Pakistan's sixth review of the $6 billion Extended Fund Facility (EFF) by the financial institution, paving way for the disbursement of a tranche of around $1 billion.

Read: Amendments to tax laws proposed for $1bn IMF tranche

Under the bill, amendments have been proposed in income tax, sales tax and federal excise laws to impose Rs375 billion taxation measures. These include withdrawal of tax exemptions worth Rs343bn.

Here, Dawn.com breaks down which items will get costlier if the bill is passed.

Mobile calls gets costlier, and so do imported phones

The legislation, once passed, will lead to the imposition of a uniform sales tax of 17 per cent on imported mobile phones priced above $200.

Previously, fixed tax rates were applied to imported handsets that were divided into three categories according to their price. A tax of Rs1,740 had to be paid on imported phones priced between $200 to $300, Rs5,400 on phones worth $350 to $500 and Rs9,270 on phones having a price higher than $500.

In addition to imported handsets, advanced tax on cellular services will also be increased from 10pc to 15pc.

There are also chances of an increase in the price of locally manufactured mobile phones with the government proposing 17pc sales tax on imported machines for mobile phone manufacturing.

Imported edibles

Several edibles, especially imported ones, are going to get costlier if the finance bill is passed.

The bill proposes 17pc sales tax on a number of items that were earlier exempted from taxes. The government terms these products luxury items, including imported live animals, steak meat, fish, vegetables, high-end bakery items, branded cheese and sausages. Moreover, 17pc sales tax has also been proposed for imported raw material used for making infant food.

Even though poultry and beef are among the basic food items that have been exempted from tax, they may get costlier given that the legislation will raise the sales tax on imported machines used in the poultry sector from 10pc to 17pc in addition to increasing tax on local poultry and cattle feed from 7pc to 17pc.

The bill also proposes an increase in general sales tax, from 10pc to 17pc, on dairy items sold in branded packaging.

Automobiles

Locally manufactured cars

After the passing of the finance bill, the federal excise duty on vehicles having an engine capacity between 1,001cc and 2,000cc will increase from 2.5pc to 5pc. Similarly, the duty on vehicles with an engine capacity higher than 2,000cc will be raised from 7.5pc to 10pc.

Meanwhile, the sales tax on locally assembled vehicles with an engine capacity higher than 850cc will be increased from 12.5pc to 17pc.

On locally manufactured double cabin vehicles, the federal excise duty will increase from 7.5pc to 10pc.

Imported vehicles

The bill proposes raising the federal excise duty on imported vehicles having the engine capacity of 1,001cc to 1,799cc from 5pc to 10pc, on 1,800cc to 3,000cc vehicles from 25pc to 30pc and on vehicles having an engine capacity higher than 3,000cc from 30pc to 40pc.

It also proposes increasing the duty on imported double cabin vehicles from 25pc to 30pc and on hybrid electric vehicles up to 1,800cc from 8.5pc to 12pc.

Increase in advanced tax

Moreover, the bill suggests increasing the advanced tax on up to 1,000cc vehicles from Rs50,000 to Rs100,000, on 1,001cc to 2,000cc vehicles from Rs100,000 to Rs200,000 and on those higher than 2,000cc from Rs200,000 to Rs400,000

Services get costlier, but only in Islamabad

Under the bill, a 5pc advanced tax has been proposed for several services, including those provided at health clubs, gyms, indoor sport facilities and massage centres. This levy has also will also cover laundry and dry cleaning services, services by car dealers, marriage halls, catering, IT services, web designing and hosting and call centres, among others.

Medicines

Medicines could also get expensive as the legislation proposes the withdrawal of tax exemptions worth Rs160bn on the pharmaceutical sector. It will also lead to the imposition of 17pc sales tax on imported raw material for pharmaceutical active ingredients.

What else?

The bill also proposes a 5pc sales tax on imported laptops and 17pc tax on imported magazines and journals.

Moreover, 17pc tax has been proposed for personal computers, sewing machines, matchboxes, iodised salt, red chili and contraceptives.

For the textile sector, the bill suggest an increase in sales tax from 10pc to 12pc on sales from retail outlets connected with the Federal Board of Revenue through a point of sales system — an online real-time system for documentation of sales that connects the computerised sales system of big retailers to FBR’s system through internet.

To put it simply, garments and clothes will likely get more expensive if the bill is passed.

Tax exemptions to REIT extended

On a separate note, the legislation also proposes extending tax exemptions available to Real Estate Investment Trust (REIT) — companies that own or finance income-producing real estate across a range of property sectors — to special purpose vehicles — a subsidiary created by a parent company to isolate financial risk — set under REITs.

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